Assessing the Value of Mortgage Loans

Another student in your accounting class says that, as she understands it, most long-term liabilities on the balance sheet are viewed negatively by potential investors. Discuss when this might be true and when it might not be.

You and Frank are studying for an upcoming accounting exam. Frank says, "Mortgage loans are the best type of loans to have." Do you agree with Frank? Explain why or why not and give examples.

Solution Preview

1 - Most long-term liabilities are viewed negatively on the balance sheet because it reduces solvency. As time progresses, a portion of the long-term liability will become a current liability. As all liabilities must be repaid, any long-term liability is a threat to the future financial stability of the company. It is a particular concern to investors when long-term liabilities begin to multiply, and the company begins funding with a high percentage of ...

Solution Summary

This solution explains if long-term liabilities are negatively viewed by investors. This solution also explains if mortgage loans are the best type of loans to have.